Wednesday, March 14, 2007

A Forum Post on Temasek's Tangle with Shin Corp

[I found this on Sgfunds.com forum written by a guy named Bluefix. This is for my reference and for your information.]

As reported by AFP: "Temasek said it will continue to monitor developments in Thailand before making future decisions regarding its controlling stake in telecom giant Shin Corp, formerly owned by ousted Thai premier Thaksin Shinawatra. In a letter to the Straits Times, managing director for corporate affairs Myrna Thomas said Temasek makes investments like any other company based on commercial considerations and after factoring in potential risks (#1). “Our investment in Shin Corp in Thailand was no different. We had a positive assessment of the outlook for Thailand and completed the investment in accordance with market norms and best practices in international mergers and acquisitions,” Thomas said. “We continue to monitor the political situation and business environment in Thailand and will take the appropriate decisions as an investment firm.” She noted that Temasek has maintained its “triple A” credit ratings from agencies Standard and Poor's and Moody's. The letter was in response to a reader who had written to the newspaper that Temasek's Thai investment was a national concern as Shin Corp has now lost 45% of its value since the deal was concluded last year. Singapore's ties with Thailand were strained after the Thaksin family sold a 49% stake in Shin Corp to Temasek in a tax-free deal which angered the Thai public ... Relations further deteriorated when Thaksin had a private meeting in the city-state with Singapore Deputy Prime Minister S. Jayakumar in January (#2). "

When you are wrong, just admit it and move on. Not good to keep grasping at straws and kicking sand when you are down. Temasek has done very well in most of its investments, but its silly to defend a pretty gaping investment thought process which went awry. Not by chance, but more due to arrogance and not doing sufficient homework on the Thai deal.

On point #1, This time that Temasek managers have made mistakes that in-depth due diligence and a modicum of investment-banking knowledge seemingly could have avoided. Temasek's decision to buy a majority stake in Thailand's Shin Corp from members of Prime Minister Thaksin Shinawatra's family unleashed a political firestorm that eventually contributed to Thaksin's decision to step down from power temporarily before being ousted later. The US$1.9 billion deal was widely criticized in Bangkok not only for the tax-free nature of the transaction but, more significant to Temasek, for the sale of strategic telecommunications concerns to a Singaporean government-linked entity. Political protesters cast Temasek's purchase as "economic imperialism", and a consumer boycott of Shin's mobile-telephone arm has dented revenues and profits in recent months. Temasek officials at the time explained that it is not a government-directed policy agency, and that Temasek makes investment decisions on strictly commercial grounds. Until then Singapore Inc had been able to skirt nationalistic criticism in Thailand, despite making substantial positions in many formerly Thai-owned banks in the aftermath of the 1997-98 Asian financial crisis.

More significant were the apparent legal blind spots in the Shin Corp deal, which some analysts now contend would have been less controversial if it had been broken up in two or three phases. Temasek was forced hurriedly to divest Shin's stake in budget airline Thai AirAsia because of Thai laws restricting foreign ownership that they apparently overlooked. What kind of due diligence and investment deal structuring or thought process that goes on when you can miss out on these glaring landmines?! There are still lingering legal questions about the waivers Temasek received to avoid making a mandatory tender offer for two Shin subsidiaries, and whether foreign concerns are allowed to own a majority stake in telecommunications concerns that operate under government concession.

Temasek's lack of transparency and its general aversion to press interviews have only added fuel to the fire of the nationalistic backlash its aggressive investment strategies are starting to cause across the region. Citing the above examples, some investment analysts contend that during Temasek's drive to acquire big stakes in regional strategic industries, particularly in banks and telecommunications, the investment company is not effectively gauging through its due-diligence procedures the possible political and even social ramifications of its investments. And that in turn raises important new questions about the quality of Temasek's management team.

On point #2, a failure to appreciate neighbourly sensitivities. Thaksin has been ousted, and the Thai government is suing him from every angle. Yet you have a high ranking Singapore politician meeting him in Singapore. Foreign Minsiter Nitya Pibulsonggram had already said before the meeting took place that he had personally warned his Singporean counterpart that there would be "reactions" from Thailand if ousted prime minister was received by Singapore Deputy Prime Minister S Jayakumar. Nitya said after having been informed of deposed prime minister Thaksin Shinawatra's pending visit to Singapore, the Thai Foreign Ministry notified Singapore "at least three times" that the treatment to be accorded Thaksin was "unacceptable" to the Thai Government.

A lack of awareness of regional cultural and political sensitivities is a big shortcoming in Temasek. The trouble is they are too proud to probably admit it. When egos, pride, nationalism, excessive feelings of superiority and lotsa cash gets mixed up, its hard to be humble man!!! Mark my words, they will end up selling Shin Corp back at a huge loss.